Oil Market Rebounds As Price Rises After Largest Cut In Production
The impact of the production cut to the tone of 10 million barrels per day agreed upon by the OPEC+ at its virtual meeting last Thursday is beginning to be felt as oil prices rebound.
Oil prices rose overnight after the OPEC and its allies agreed to a 10% cut in output – the largest-ever reduction in production.
The production cut by the major oil-producing countries among others brought an end to a damaging price war between Saudi Arabia and Russia which has been exacerbated by a slump in demand caused by the coronavirus.
Global benchmark Brent crude was up 3.9% to $32.71 a barrel and US grade West Texas Intermediate up 6.1% to $24.15 a barrel.
Brent had fallen to a low of $22.58 a barrel – its lowest price for 18 years – as the stalling of factory activity, grounding of aircraft and absence of traffic on the roads cut demand by half.
Last night’s deal to cut 9.7 million barrels a day was agreed following a video conference between 23 nations.
US President Donald Trump personally thanked the leaders of both countries, King Salman and Vladimir Putin, in a tweet, hailing the “big oil deal”.
He added: “This will save hundreds of thousands of energy jobs in the United States… Great deal for all!”
Mr Trump had played a significant role by cutting a deal with Mexico for a smaller cut in its output by 100,000 barrels for two months.
The Mexican president, Andres Manuel Lopez Obrador, said the US president had agreed to compensate for Mexico’s smaller cut.
However, financial markets remain on edge as the lockdown and restriction of people’s movement continue affect demand for oil.
One analyst noted that the decline in oil demand is well ahead of the output cuts that have been agreed and that this will frustrate hopes of the price maintaining an upward momentum.
Further cuts may therefore be needed to bring supply and demand into equilibrium and make a lasting impression on the price.